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NFTS: Securing ownership of digital goods

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NFTS: Securing ownership of digital goods

Recently, there has been strong investment interest in the market of non-fungible tokens (nfts). Nft is a type of digital asset that represents works of art, music, videos, and even objects used within video games. are bought and sold online, often with cryptocurrencies and their operating principle takes advantage of the features of blockchain technology . In the second quarter of 2021, the nfts market recorded transactions worth $ 2.5 billion, compared to 13.7 million in the corresponding period of 2020. International auction houses turn their attention to nfts while much of the business community observes its frantic pace of adoption with skepticism. But what are non-fungible tokens and how are they called to transform the investment community?

Writes Dr. Savvas Hadjichristofis, Associate Professor of Artificial Intelligence, NEAPOLIS University of Paphos, member of the Science Hoaxes team.

In order to decipher the meaning of the Non-fungible Token, it is first necessary to give the physical meaning of the term fungible. In free translation, the term is rendered as “exchangeable”. Many exchangeable goods in the natural (and not only) world are objects of value and a medium of exchange. For example, gold, oil, silver, diamonds and natural gas are defined as commodities that have some nominal value. But their value is determined by the quantity and not by their origin. One kilo of gold, which was mined in Halkidiki, has exactly the same value as one kilo of gold that was mined in Latin America. The documentary money (Fiat) obviously belongs to the same category of exchangeable goods. A 50 Euro banknote can be exchanged with any other 50 Euro banknote without compromising its value. Each 2 Euro coin continues to have its face value regardless of whether it comes from Austria, the Netherlands or Cyprus. The same goes for most cryptocurrencies. A bitcoin retains its buying value whether it was digitally mined 5 years ago or 2 minutes ago. The property of interchangeability allows transactions and leads to the commercialization of operations and materials.

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But in the natural world, goods that are not interchangeable also have value. These goods are unique and copies of them have minimal to zero value. One such example is works of art. The value of a Picasso masterpiece is determined solely by art critics and auction houses. Everyone can access canvases and colors, and some may have the talent to copy Guernica in great detail. In no case, however, can the copy be exchanged for the original. The value of non-exchangeable goods is directly related to their uniqueness. In the same category obviously belong all the products that are the work of intellectual property but also collectible goods. For example, each copy of the book Crime and Punishment may be interchangeable with any other copy of the same book in the same edition. But Dostoevsky's original text did not. It is characterized by its uniqueness and its collectible value. And the right to non-exchangeability is claimed by many collectibles. The Elvis Presley suit, the Michael Jordan jersey and the Atari Cosmos gaming machine are collectible non-exchangeable goods, starring in international auctions. In fact, in the case of collectibles, the peculiarity is that the good may not be exclusively unique, but may have been released in a limited number of copies. Such cases of collectibles are found in sports cards, special editions of devices (such as the Maziora Dreamcast) and limited releases of music collections and albums (for example the album The Beatles – Abbey Road).

WHAT ARE NON-FUNGIBLE TOKENS ?

Non-tradable goods are an excellent investment. For example, buying a work of art is not particularly related to the stock market or the bond market. No matter what the financial markets do – they go up or down – the art market is not affected much. And this kind of independence is what investors look for when diversifying their assets. With this in mind, combined with the widespread use of new technologies, the concept of digital non-exchangeable goods is being born. And in 2014, the term NFT makes its appearance, allowing the digital signature on intangible products and securing their authenticity and origin.

The key to implementing the NFT idea was Blockchain technology. Blockchain is a decentralized method of recording transactions or data. The term “decentralized” refers to the property of technology not to accumulate data collected in a central unit, but to share it with the nodes participating in the network. The principle of blockchain allows data traceability and enhances transaction trust. At the same time, the technology provides security as it supports various protection mechanisms and ensures transparency as all transactions are recorded in the digital journal and immediately available to all participants.

The technology behind Non-fungible Tokens allows the use of Blockchain in order to convert any digital asset into a cryptocurrency. The cryptocurrency produced includes data on the authenticity of the digital asset while blockchain technology ensures that this information is secure and accessible to all. Every digital work of art is transformed into a unique non-exchangeable cryptocurrency which represents and obviously secures its value. Today, any digital file can be easily reproduced without the need for special technical knowledge or artistic qualifications. Think about how easily you make daily copies of an image or an audio file. Using NFT technology, the creator enters his identity file into his digital file. This information (not the digital file) is stored in the Blockchain and is available to everyone involved. From now on, the digital file has been transformed into a kind of cryptocurrency which is unique but at the same time rare. Every user can now see the information that accompanies the digital file and attempt to purchase it. Digital files belong to their creators, and NFT technology certifies ownership. Of course, this does not necessarily prevent the file from being played. The technology ensures the uniqueness of the original and authentic version while the use of Blockchain ensures that NFTs are non-counterfeit.

Another important feature of NFTs is that they are indivisible. Unlike classic cryptocurrencies, which can be traded in installments (for example, it is possible to buy 0.1 or 0.55 bitcoin), NFTs are indivisible. The interested party can only obtain the entire cryptocurrency and become the new legal owner of the digital file. Automatically, with the purchase, the information that accompanies NFT is updated in the blockchain and the buyer appears as the new owner. A peculiarity of NFTs, which arises from the transaction product which in most cases is intellectual property, is that it enables the original creator to collect financial rights from each transaction in which his work participates. At each resale, the creator receives a percentage of the sale price. This percentage is set at the initial creation of the NFT and cannot be modified thereafter.

WHERE ARE THE NFTS USED?

An obvious use of NFTs is to protect and commercialize the intellectual property of digital works of art. Recently, a total of 101 NFTs from the “Bored Ape Yacht Club” collection sold for $ 24.4 million online at Sotheby's.

But in practice, the use of NFTs is observed in many other cases. A typical example is their use in video games. For years, many video games have unique items with which users could interact inside and outside the game. For example, in 2012, a World of Warcraft player paid $ 12,000 to buy a digital sword, which was considered extremely rare in the gaming world. Today, the use of NFT technology allows the digital signature of rare and unique items and their transaction out of the game. A few months ago, an F1 digital car was sold in NFT format for the F1 Delta Time game for $ 3 million in cryptocurrencies. And this is just the beginning. More and more games are appearing in the market that support trading of unique items with NFT, pointing the way to a new market.

Another example of the adoption of Non-fungible Tokens can be found in the digital world of Decentraland. Decentraland is a decentralized 3D virtual reality platform that also uses blockchain. It officially opened its gates in 2020 and is a digital world in which anyone can move, have fun, communicate and do business. Even the Decentraland model of government follows a political regime of decentralized democracy. Every piece of land in Decentraland is actually an NFT and its value is adjusted, following the rules of the natural world, by its geographical location and neighborhood. To consider the prospect of Decentraland, it is worth noting that the most expensive virtual plot sold for 900 thousand dollars.

At the same time, for sports fans, there are several NFTs that are considered holy grail. From baseball collectibles, athlete autographs to photos and videos of matches, millions of NFTs are produced. A typical example is the photo with the name “Statue of LeBron”, which was taken by the photographer Kimani Okearah. The photo was converted to NFT and sold for $ 21.6 million, showing the expectations of NFT creators in the future.

And the NFT market obviously does not stop here. Twitter CEO Jack Dorsey sold his first NFT tweet for $ 2.8 million. The tweet – which was published on March 21, 2006 and reads, “I just set up my twttr” – was sold to Bridge Oracle CEO Sina Estavi, who also submitted a $ 1.1 million offer in an Elon Musk tweet. The money raised was donated to GiveDirectly, a non-profit organization that specializes in providing financial assistance to the needy and COVID-19 aid initiatives in Africa.

HOW DO NFTS TRANSFORM OUR WORLD?

Today, NFTs offer a huge opportunity for artists and creators to monetize their work. With the technology of NTFs they can make their works available to the public themselves, removing from the equation auction houses and galleries. In addition, the way NFTs operate allows artists to continue to enjoy revenue from each resale. The value of art is obviously recognized in most cases years after its production. Today, artists have no income from future resales of their work. But the situation seems to be changing.

At the same time, NFTs technology is creating prospects for new digital goods markets, many of which seem to have significant momentum. At the same time, the high volatility in the value of cryptocurrencies may push their holders to invest in non-exchangeable cryptocurrencies as an alternative investment plan.

It is important to note that today, the market is looking for these images that will attract the interest of investors. And in this journey, it is noteworthy to mention that artificial intelligence is gaining great ground. Artists use the technology of artificial intelligence to produce unique images with a specific aesthetic. A typical example is the FusionApes collection which consists of images created using neural networks. The total sales volume for the FusionApes collection at the time of writing is over $ 5 million.

The technology of NFTs really seems to offer a new investment framework but it is too early to evaluate it responsibly. The technology itself faces some additional weaknesses, such as the fact that the image itself is not stored in the blockchain but only the elements that describe it. The scientific community, however, sees these weaknesses as challenges and very soon, developments in their operating architecture are expected. At the same time, investing in NFTs requires knowledge and responsible moves. The market for non-tradable goods, both in the physical and digital worlds, is a long-term investment of people who realize both the artistic and the collectible value of products.

From an October issue of Forbes

Source: www.philenews.com

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